The U.S. dollar gives up some of its gains after the ADP report on private payrolls shows a 65,000 increase in April, undershooting expectations of a 100,000 increase and well below the 106,000 in March. The report is a proxy for the direction of Friday’s release of non-farm payrolls, helping to predict whether they will be higher or lower than the prior figure. The March rise in the ADP report to 106,000 from 65,000 in February correctly predicted the direction in the rise in the March payrolls to 180,000 from 162,000 in February. Today’s 65,000 figure raises the possibility of seeing a payrolls figure of as low as 80,000, which case would resurrect concerns that the U.S. slowdown is further spilling over to U.S. labor markets.
The dollar's earlier strength had extended across the board prompted by a combination of yesterday’s stronger than expected manufacturing ISM release and a new record high in the Dow helping to boost risk appetite. News Corp’s $5 billion bid for Dow Jones & Co was largely instrumental in the sharp rebound in U.S. equity indexes, after these had fallen in the red following the 4.9% decline in the pending home sales index. Most notable about the initial equity sell-off was the shrugging of the three-point increase in the manufacturing ISM report. The report showed broad signs of stability manufacturing, dispelling some of the pessimism shown in the regional surveys (Chicago PMI, Philly Fed and Empire PMI).
At 10 am EST is the March report on factory orders is expected to show a 2.2% rise from a 1.0% rise. Durables orders could rise by as high as 3.0% after a 1.7% increase.
Euro gains on weak ADP, eyes 1.36
The euro is shored up by this morning’s weak ADP report forecasting a net creation of 64,000 jobs in private payrolls, which raises the possibility of a non-farm payroll figure at 70,000 to 80,000 from the prior 180,000. Support is seen at 1.3545 followed by 1.3525. Upside seen initially capped at 1.3585, with 1.3610 acting as the subsequent pressure point.
Fading pessimism in the U.S. dollar on the back of strong manufacturing ISM and return to risk appetite has extended profit taking in the euro, which we deem to be a corrective a move and not the beginning of any general downtrend in the single currency. Euro zone manufacturing PMI slipped to 55.4, undershooting expectations of 55.7. Germany’s unemployment was leaked to show a 9,000 decline, in April, exceeding expectations of a 40,000 decline. The Euro zone unemployment rate fell to 7.2% in March from 7.3% in February, reaching its lowest level on record since the harmonized data began in 1993.
USD/JPY breaks 120 seen short-lived USD/JPY breaks the 120 level for the first time in two months amid a combination of thin trading volumes in Asian trade and stabilizing dynamics in the dollar following yesterday’s ISM. The prospect of further gains will largely depend on the U.S. side of the pair. Merger-driven optimism in U.S. stocks is expected to maintain the positive correlation between U.S. indexes and USD/JPY, while Thursday’s services ISM and Friday’s payrolls have the potential to act as catalysts in defining the direction. Interim resistance is seen limited at 120.40, for declines towards 120 and 119.60.
Sterling targets 1.9950
UK construction PMI edged up to 59.8 in April from 58.9. Mortgage approvals are finally showing signs of weakness, retreating to an 11-month low of 111,000. Expectations of a weak U.S. payrolls report following this morning’s ADP is to help cement support at 1.9885. Expect upside target at 1.9950, followed by 1.9980.
Ashraf Laidi
Chief FX Analyst
CMC Markets US
140 Broadway, 30th Floor
New York, NY 10005
(212) 644-4220
a.laidi@cmcmarkets.com
